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First Substitute H.B. 200

This document includes Senate 2nd Reading Floor Amendments incorporated into the bill on Fri, Feb 25, 2005 at 5:28 PM by smaeser. -->

Representative James A. Dunnigan proposes the following substitute bill:




Sponsor: James A. Dunnigan

             6      LONG TITLE
             7      General Description:
             8          This bill modifies various provisions of the Insurance Code related to property and
             9      casualty insurance.
             10      Highlighted Provisions:
             11          This bill:
             12          .    corrects citations;
             13          .    clarifies the monetary considerations for a surplus lines insurance policy that are
             14      subject to the surplus lines insurance tax;
             15          .    eliminates the requirement that providers of service contracts pay a fee when they
             16      file certain notices with the department;
             17          .    addresses first party medical coverages for motor vehicle insurance;
             18          .    addresses specific requirements for title insurance producers;
             19          .    addresses a title insurance producer performing the functions of escrow;
             20          .    addresses a title insurance producer business; and
             21          .    makes technical changes.
             22      Monies Appropriated in this Bill:
             23          None
             24      Other Special Clauses:
             25          None

             26      Utah Code Sections Affected:
             27      AMENDS:
             28          31A-3-101, as last amended by Chapter 169, Laws of Utah 1997
             29          31A-3-301, as last amended by Chapter 167, Laws of Utah 1987
             30          31A-6a-103, as last amended by Chapter 298, Laws of Utah 2003
             31          31A-22-302, as last amended by Chapters 76 and 218, Laws of Utah 2003
             32          31A-23a-203, as last amended by Chapter 173, Laws of Utah 2004
             33          31A-23a-204, as renumbered and amended by Chapter 298, Laws of Utah 2003
             34          31A-23a-406, as last amended by Chapter 117, Laws of Utah 2004
             36      Be it enacted by the Legislature of the state of Utah:
             37          Section 1. Section 31A-3-101 is amended to read:
             38           31A-3-101. General finance provisions.
             39          (1) The department's expenses shall be paid from the General Fund. Department
             40      expenditures shall conform to the Legislature's appropriation adopted under Title 63, Chapter
             41      38, Budgetary Procedures Act.
             42          (2) Except as provided in [Sections 31A-3-301 and] Section 31A-2-206 , or as
             43      otherwise specifically provided in this title, all monies collected by the commissioner shall be
             44      deposited without deduction in the General Fund.
             45          Section 2. Section 31A-3-301 is amended to read:
             46           31A-3-301. Tax imposed on surplus lines insurance transactions.
             47          [Insurance transactions] (1) (a) An insurance transaction under Section 31A-15-103
             48      [are] is subject to a tax of 4-1/4% of gross premiums, less 4-1/4% of return premiums paid to
             49      insureds by reason of policy cancellations or premium reductions. [This]
             50          (b) The gross premium for a surplus lines insurance transaction means the monetary
             51      consideration for an insurance policy including all fees charged to the insured, however
             52      designated.
             53          (2) The tax imposed by this section does not apply to:
             54          (a) ocean marine insurance[,];
             55          (b) insurance premiums paid by institutions within the state system of higher education
             56      as specified in Section 53B-1-102 [,]; or

             57          (c) annuities.
             58          (3) This tax shall be deposited in the General Fund.
             59          Section 3. Section 31A-6a-103 is amended to read:
             60           31A-6a-103. Requirements for doing business.
             61          (1) [Service contracts] A service contract may not be issued, sold, or offered for sale in
             62      this state unless the service contract is insured under a service contract reimbursement
             63      insurance policy issued by:
             64          (a) an insurer authorized to do business in this state[,]; or
             65          (b) a recognized surplus lines carrier.
             66          (2) (a) [Service contracts] A service contract may not be issued, sold, or offered for
             67      sale unless a true and correct copy of the service contract and the provider's reimbursement
             68      insurance policy have been filed with the commissioner. [Copies of contracts and policies] A
             69      copy of a contract and policy must be filed no less than 30 days prior to the issuance, sale
             70      offering for sale, or use of the service contract or reimbursement insurance policy in this state.
             71          (b) Each modification of the terms of any service contract or reimbursement insurance
             72      policy must also be filed 30 days prior to its use in this state. [Each filing must be
             73      accompanied by a filing fee as required under Subsection 31A-3-103 , or the filing shall be
             74      rejected.]
             75          (c) Persons complying with this chapter are not required to comply with:
             76          (i) Subsections 31A-21-201 (1) and 31A-23a-402 (3); or
             77          (ii) Chapter 19a, Utah Rate Regulation Act.
             78          (3) (a) Premiums collected on service contracts are not subject to premium taxes.
             79          (b) Premiums collected by issuers of reimbursement insurance policies are subject to
             80      premium taxes.
             81          (4) [Persons] A person marketing, selling, or offering to sell service contracts for
             82      service contract providers that [comply] complies with this chapter [are] is exempt from the
             83      licensing requirements of this title.
             84          (5) Service contract providers complying with this chapter are not required to comply
             85      with:
             86          (a) Chapter 5, Domestic Stock and Mutual Insurance Corporations;
             87          (b) Chapter 7, Nonprofit Health Service Insurance Corporations;

             88          (c) Chapter 8, Health Maintenance Organizations and Limited Health Plans;
             89          (d) Chapter 9, Insurance Fraternals;
             90          (e) Chapter 10, Annuities;
             91          (f) Chapter 11, Motor Clubs;
             92          (g) Chapter 12, State Risk Management Fund;
             93          (h) Chapter 13, Employee Welfare Funds and Plans;
             94          (i) Chapter 14, Foreign Insurers;
             95          (j) Chapter 19a, Utah Rate Regulation Act;
             96          (k) Chapter 25, Third Party Administrators; and
             97          (l) Chapter 28, Guaranty Associations.
             98          Section 4. Section 31A-22-302 is amended to read:
             99           31A-22-302. Required components of motor vehicle insurance policies --
             100      Exceptions.
             101          (1) Every policy of insurance or combination of policies purchased to satisfy the
             102      owner's or operator's security requirement of Section 41-12a-301 shall include:
             103          (a) motor vehicle liability coverage under Sections 31A-22-303 and 31A-22-304 ;
             104          (b) uninsured motorist coverage under Section 31A-22-305 , unless affirmatively
             105      waived under Subsection 31A-22-305 (4); [and]
             106          (c) underinsured motorist coverage under Section 31A-22-305 , unless affirmatively
             107      waived under Subsection 31A-22-305 (9)[.]; and
             108          (d) except as provided in Subsection (2) and subject to Subsection (3), personal injury
             109      protection under Sections 31A-22-306 through 31A-22-309 .
             110          (2) [Every] A policy of insurance or combination of policies, purchased to satisfy the
             111      owner's or operator's security requirement of Section 41-12a-301 [, except] for [motorcycles,
             112      trailers, and semitrailers, shall also include] a motorcycle, trailer, or semitrailer is not required
             113      to have personal injury protection under Sections 31A-22-306 through 31A-22-309 .
             114          (3) (a) First party medical coverages may be offered or included in policies issued to
             115      motorcycle, trailer, and semitrailer owners or operators.
             116          (b) Owners and operators of motorcycles, trailers, and semitrailers are not covered by
             117      personal injury protection coverages in connection with injuries incurred while operating any
             118      of these vehicles.

             119          (4) First party medical coverage expenses shall be governed by the relative value study
             120      provisions under Subsections 31A-22-307 (2) and (3).
             121          Section 5. Section 31A-23a-203 is amended to read:
             122           31A-23a-203. Training period requirements.
             123          (1) A producer is eligible to add the surplus lines of authority to the person's producer's
             124      license if the producer:
             125          (a) has passed the applicable examination;
             126          (b) has been a producer with property and casualty lines of authority for at least three
             127      years during the four years immediately preceding the date of application; and
             128          (c) has paid the applicable fee under Section 31A-3-103 .
             129          (2) A person is eligible to become a consultant only if the person has acted in a
             130      capacity that would provide the person with preparation to act as an insurance consultant for a
             131      period aggregating not less than three years during the four years immediately preceding the
             132      date of application.
             133          [(3) A title producer is eligible to become a title agency only if the title producer has
             134      been licensed as a title producer in the search and escrow categories for at least three years
             135      during the four years immediately preceding the date of application.]
             136          [(4)] (3) The training periods required under this section apply only to natural persons
             137      applying for licenses under this chapter.
             138          Section 6. Section 31A-23a-204 is amended to read:
             139           31A-23a-204. Special requirements for title insurance producers.
             140          Title insurance producers shall be licensed in accordance with this chapter, with the
             141      additional requirements listed in this section.
             142           S. [ (1) Every title insurance agency newly licensed, merged, or acquired after July 1, 2005,
             143      shall be owned or managed by a full-time title producer licensed with search and escrow lines
             144      of authority for at least three of the four years immediately preceding the date of application.
] .S

             145          [(1)] S. [ (2) ] (1) .S (a) Every title insurance agency or producer appointed by an insurer shall
             146      maintain:
             147          (i) a fidelity bond;
             148          (ii) a professional liability insurance policy; or
             149          (iii) a financial protection:

             150          (A) equivalent to that described in Subsection [(1)] S. [ (2) ] (1) .S (a)(i) or (ii); and
             151          (B) that the commissioner considers adequate.
             152          (b) The bond or insurance required by this Subsection [(1)] S. [ (2) ] (1) .S :
             153          (i) shall be supplied under a contract approved by the commissioner to provide
             154      protection against the improper performance of any service in conjunction with the issuance of
             155      a contract or policy of title insurance; and
             156          (ii) be in a face amount no less than $50,000.
             157          (c) The commissioner may by rule exempt title insurance producers from the
             158      requirements of this Subsection [(1)] S. [ (2) ] (1) .S upon a finding that, and only so long as, the
             158a      required
             159      policy or bond is generally unavailable at reasonable rates.
             160          [(2)] S. [ (3) ] (2) .S (a) (i) Every title insurance agency or producer appointed by an
             160a      insurer shall
             161      maintain a reserve fund.
             162          (ii) The reserve fund required by this Subsection [(2)] S. [ (3) ] (2) .S shall be:
             163          (A) (I) composed of assets approved by the commissioner;
             164          (II) maintained as a separate trust account; and
             165          (III) charged as a reserve liability of the title insurance producer in determining the
             166      producer's financial condition; and
             167          (B) accumulated by segregating 1% of all gross income received from the title
             168      insurance business.
             169          (iii) The reserve fund shall contain the accumulated assets for the immediately
             170      preceding ten years as defined in Subsection [(2)] S. [ (3) ] (2) .S (a)(ii).
             171          (iv) That portion of the assets held in the reserve fund over ten years may be:
             172          (A) withdrawn from the reserve fund; and
             173          (B) restored to the income of the title insurance producer.
             174          (v) The title insurance producer may withdraw interest from the reserve fund related to
             175      the principal amount as it accrues.
             176          (b) (i) A disbursement may not be made from the reserve fund except as provided in
             177      Subsection [(2)] S. [ (3) ] (2) .S (a) unless the title insurance producer ceases doing business as a result of:
             178          (A) sale of assets;
             179          (B) merger of the producer with another producer;
             180          (C) termination of the producer's license;

             181          (D) insolvency; or
             182          (E) any cessation of business by the producer.
             183          (ii) Any disbursements from the reserve fund may be made only to settle claims arising
             184      from the improper performance of the title insurance producer in providing services defined in
             185      Section 31A-23a-406 .
             186          (iii) The commissioner shall be notified ten days before any disbursements from the
             187      reserve fund.
             188          (iv) The notice required by this Subsection [(2)] S. [ (3) ] (2) .S (b) shall contain:
             189          (A) the amount of claim;
             190          (B) the nature of the claim; and
             191          (C) the name of the payee.
             192          (c) (i) The reserve fund shall be maintained by the title insurance producer or the title
             193      insurance producer's representative for a period of two years after the producer ceases doing
             194      business.
             195          (ii) Any assets remaining in the reserve fund at the end of the two years specified in
             196      Subsection [(2)] S. [ (3) ] (2) .S (c)(i) may be withdrawn and restored to the former producer.
             197          [(3)] S. [ (4) ] (3) .S Any examination for licensure shall include questions regarding the search
             198      and examination of title to real property.
             199          [(4)] S. [ (5) ] (4) .S A title insurance producer may not perform the functions of escrow
             199a      unless the
             200      producer has been examined on the fiduciary duties and procedures involved in those
             201      functions.
             202          [(5)] S. [ (6) ] (5) .S The commissioner shall adopt rules outlining an examination that
             202a      will satisfy
             203      this section.
             204          [(6)] S. [ (7) ] (6) .S A license may be issued to a title insurance producer who has
             204a      qualified:
             205          (a) to perform only searches and examinations of title as specified in Subsection [(3)]
             206      S. [ (4) ] (3) .S ;
             207          (b) to handle only escrow arrangements as specified in Subsection [(4)] S. [ (5) ] (4).S ; or
             208          (c) to act as a title marketing representative.
             209          [(7)] S. [ (8) ] (7) .S A person licensed to practice law in Utah is exempt from the
             209a      requirements of
             210      Subsections [(1)] S. [ (2) ] (1) .S and [(2)] S. [ (3) ] (2) .S if that person issues 12 or less
             210a      policies in any 12-month
             211      period.

             212          [(8)] S. [ (9) ] (8) .S A person licensed to practice law in Utah, whether exempt under
             212a      Subsection
             213      [(7)] S. [ (8) ] (7) .S or not, shall maintain a trust account separate from a law firm trust account
             213a      for all title
             214      and real estate escrow transactions.
             215          Section 7. Section 31A-23a-406 is amended to read:
             216           31A-23a-406. Title insurance producer's business.
             217          (1) A title insurance producer may do escrow involving real property transactions if all
             218      of the following exist:
             219          (a) the title insurance producer is licensed with:
             220          (i) the title line of authority; and
             221          (ii) the escrow subline of authority;
             222          (b) the title insurance producer is appointed by a title insurer authorized to do business
             223      in the state;
             224          (c) one or more of the following is to be issued as part of the transaction:
             225          (i) an owner's policy of title insurance; or
             226          (ii) a lender's policy of title insurance;
             227          (d) (i) all funds deposited with the title insurance producer in connection with any
             228      escrow:
             229          (A) are deposited:
             230          (I) in a federally insured financial institution; and
             231          (II) in a trust account that is separate from all other trust account funds that are not
             232      related to real estate transactions; and
             233          (B) are the property of the persons entitled to them under the provisions of the escrow;
             234      and
             235          (ii) are segregated escrow by escrow in the records of the title insurance producer;
             236          (e) earnings on funds held in escrow may be paid out of the escrow account to any
             237      person in accordance with the conditions of the escrow; and
             238          (f) the escrow does not require the title insurance producer to hold:
             239          (i) construction funds; or
             240          (ii) funds held for exchange under Section 1031, Internal Revenue Code.
             241          (2) Notwithstanding Subsection (1), a title insurance producer may engage in the
             242      escrow business if:

             243          (a) the escrow involves:
             244          (i) a mobile home;
             245          (ii) a grazing right;
             246          (iii) a water right; or
             247          (iv) other personal property authorized by the commissioner; and
             248          (b) the title insurance producer complies with all the requirements of this section
             249      except for the requirement of Subsection (1)(c).
             250          (3) Funds held in escrow:
             251          (a) are not subject to any debts of the title insurance producer;
             252          (b) may only be used to fulfill the terms of the individual escrow under which the funds
             253      were accepted; and
             254          (c) may not be used until all conditions of the escrow have been met.
             255          (4) Assets or property other than escrow funds received by a title insurance producer in
             256      accordance with an escrow shall be maintained in a manner that will:
             257          (a) reasonably preserve and protect the asset or property from loss, theft, or damages;
             258      and
             259          (b) otherwise comply with all general duties and responsibilities of a fiduciary or
             260      bailee.
             261          (5) (a) A check from the trust account described in Subsection (1)(d) may not be
             262      drawn, executed, or dated, or funds otherwise disbursed unless the segregated escrow account
             263      from which funds are to be disbursed contains a sufficient credit balance consisting of collected
             264      or cleared funds at the time the check is drawn, executed, or dated, or funds are otherwise
             265      disbursed.
             266          (b) As used in this Subsection (5), funds are considered to be "collected or cleared,"
             267      and may be disbursed as follows:
             268          (i) cash may be disbursed on the same day the cash is deposited;
             269          (ii) a wire transfer may be disbursed on the same day the wire transfer is deposited;
             270          (iii) the following may be disbursed on the day following the date of deposit:
             271          (A) a cashier's check;
             272          (B) a certified check;
             273          (C) a teller's check;

             274          (D) a U.S. Postal Service money order; and
             275          (E) a check drawn on a Federal Reserve Bank or Federal Home Loan Bank; and
             276          (iv) any other check or deposit may be disbursed:
             277          (A) within the time limits provided under the Expedited Funds Availability Act, 12
             278      U.S.C. Section 4001 et seq., as amended, and related regulations of the Federal Reserve
             279      System; or
             280          (B) upon written notification from the financial institution to which the funds have
             281      been deposited, that final settlement has occurred on the deposited item.
             282          (c) Subject to Subsections (5)(a) and (b), [before the disbursement of funds, any
             283      changes to any settlement statement made after the final closing documents are executed shall
             284      be authorized or acknowledged by signature of the party or parties affected by the change] any
             285      material change to a settlement statement made after the final closing documents are executed
             286      must be authorized or acknowledged by date and signature on each page of the settlement
             287      statement by the one or more persons affected by the change before disbursement of funds.
             288          (6) The title insurance producer shall maintain records of all receipts and
             289      disbursements of escrow funds.
             290          (7) The title insurance producer shall comply with:
             291          (a) Section 31A-23a-409 ; [and]
             292          (b) Title 46, Chapter 1, Notaries Public Reform Act; and
             293          [(b)] (c) any rules adopted by the commissioner in accordance with Title 63, Chapter
             294      46a, Utah Administrative Rulemaking Act, that govern escrows.

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